Tech party ain146;t over yet

What a week! A cloud of confusion hung over the Indian tech sector, as a result of Infosys8217; flat revenue projections coupled with TCS...

What a week! A cloud of confusion hung over the Indian tech sector, as a result of Infosys8217; flat revenue projections coupled with TCS8217; insipid results, prompting many to ask if the tech party is finally reaching its fag end.

But a closer look would tell that it8217;s far to early to write off the technology sector, the darling of market investors. The numbers reeled out by tech companies show that the situation is not as bad as made out to be.

That said, if the news from the US is any indication, there will be tough times ahead for technology firms.

Back home, if both Infy and TCS rocked the markets, the other two in the elite Tech Club 8212; Wipro and Satyam 8212; acted as steadying factors, thereby improving the sector8217;s overall outlook.

To put things in perspective, let8217;s look at some figures. The total net profit of eight large and medium software companies has risen by a smart 41.8 per cent in the quarter ended March 2005 over the same period of last year. Also, their total revenues have seen a healthy rise of 26.30 per cent.

Then wherein lies the confusion? It could be that investors forgot to take note that Infosys is known for giving conservative guidances every quarter.

8220;This may be to keep investor expectations under control. Infosys always outperforms their own estimates. We have been seeing this for the last several quarters,8221; said a fund manager who preferred anonymity.

Story continues below this ad

Incidentally, it was a neat performance in the last quarter from Infosys, as its net profit rose 65.8 per cent to Rs 559 crore.

8216;8216;Customers8217; focus on issues related to compliance of Sarbanes-Oxley Act, Anti-Money Laundering Act and the Patriot Act in the US would have short-term impact on the earnings,8217;8217; said Infy CEO Nandan Nilekani said while announcing the company8217;s results.

The US, being the biggest market for most Indian tech players, the Infy forecast was based on the belief that their US clients will be busy tackling compliance to the new norms. Others like TCS, Satyam and Wipro, however, didn8217;t come out with any warning on future earnings.

But TCS played the spoil-sport with a shoddy performance: its Q4 net sunk 34 per cent. 8220;The profit is far short of expectations. TCS is a new baby8230; we are still to get used to their working style,8221; said Arun Kejriwal, director, Angel Broking.

Story continues below this ad

TCS8217;s underperformance, in fact, led the management to rethink their strategy of not giving out a quarterly guidance.

The TCS ripples were offset by No. 4 player Satyam, which, while beating forecasts, showed a 54 per cent upswing in net profit. 8220;We are hopeful that the growth momentum experienced in fiscal 2005 would continue,8221; said Ramalinga Raju, Chairman, Satyam while announcing the company8217;s results last Thursday.

Some analysts say Raju8217;s forecast is tied to the Infy guidance.

Nilekani had also said that although the managements of a couple of Infy8217;s top 20 clients were busy with internal reorganisation resulting in a slowdown, 8216;8216;We are hopeful of seeing traction in volume from Q2 onwards,8217;8217; Nilekani said.

Story continues below this ad

This means that if the first quarter April-June of the 2005-06 fiscal may witness a slowdown, the situation will be return to normal by the second. Wipro too, which reported a 58 per cent rise in profit for 2004-05, said domestic business would improve in the current year.

Analysts say the slump was just a correction, a stock market phenomenon.

8220;The worst is over. Things are gradually coming back to normalcy,8221; said an analyst with a leading broking company.

Perhaps he should also look West.